Cashing out? Why banking sector as we know it is doomed

21 December 2017

The banking sector is finding it difficult to build new products based on consumer data preference, as more agile fintech firms without the shackles of legacy IT infrastructure storm ahead in this area.

Hazel Moore, co-founder and chairman of FirstCapital, an investment bank specialising in M&A and growth capital for tech companies, says: “There is so much data in financial services organisations. Banks know everything we buy and do financially. It provides an interesting opportunity for banks.

“There are a lot of ways banks can integrate real-world data into their services, such as looking at footfall in retail areas or data from the travel and entertainment industry.”

But, says Moore, banks are struggling to adapt to integrating all this data into better services because they are finding it hard to upgrade their old infrastructure. She believes this is where fintech companies are gaining a competitive advantage over the traditional banks. Unlike banks, fintech firms do not have to deal with the expense and complexity of having to upgrade or replace legacy systems. Instead, they can develop systems which can “digitally discern data” from the ground up to build products that makes life easier for customers.

According to Moore, the flexibility of fintechs in being able to provide digital services to consumers at a low cost will see a very different future for the banking industry – indeed, she does not think banks will even exist in their current form in 20 years’ time.

She thinks banks could have a similar fate to car companies. “Car makers used to make cars, but now they are assembly operations,” she says. “Intense competition has led to much reduced margins, and the opportunities now are in high-value services such as infotainment.”

They also face the threat of the big internet companies such as Facebook, Google or Amazon also becoming banks. A recent survey showed around 73 per cent of millennials would prefer to use Google or Amazon for banking and 33 per cent do not see the need for a bank at all. The question is now, says Moore: “How do banks redesign themselves?”